{"id":100,"date":"2023-01-01T16:51:00","date_gmt":"2023-01-01T16:51:00","guid":{"rendered":"https:\/\/demo.codevibrant.com\/mag-portal-demos\/mag-portal\/?p=100"},"modified":"2023-01-31T13:48:50","modified_gmt":"2023-01-31T13:48:50","slug":"psu-banks-the-long-lost-jewels-are-back","status":"publish","type":"post","link":"https:\/\/indiastockguru.com\/index.php\/2023\/01\/01\/psu-banks-the-long-lost-jewels-are-back\/","title":{"rendered":"PSU Banks \u2013 The long lost jewels are back\ufffc"},"content":{"rendered":"\n

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Nifty PSU bank index rose 3.6% over the past one month beating Nifty 50 down 3.5%. Nifty PSU bank index is the only sectoral index in the positive zone over the past 30 day period. All other indices, from pharma, realty, healthcare, to FMCG, metals and IT Nifty gave negative returns, ranging between 1-10% over the past one month.  <\/p>\n\n\n\n

Public sector undertaking (PSU) banks are nationalized banks with majority shareholding held by the Government of India. Bad loan mess clean-up initiated by the government in 2014 is currently bearing fruit for the PSU banking sector. Impressed with improving asset quality, PSU banks are witnessing strong investor interest as State Bank of India (SBI), Bank of Baroda, Punjab National Bank (PNB), Canara Bank touched their respective 52-week highs in the first fortnight of December. Is it just the long-awaited asset quality improvement, or there is more to this PSU banking sector euphoria and is this dream run sustainable.<\/p>\n\n\n\n

Stable asset quality and strong NIMs<\/strong><\/p>\n\n\n\n

Gross NPA ratio improved by 585 basis points (bps) for the Central Bank of India strongest across the banking sector in the September 2022 quarter. NPAs have been gradually reducing over the past two years post Covid-19 pandemic for PSU banks.<\/p>\n\n\n\n

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High provisioning mandated by RBI, strong recovery on bad loan front and write offs aided moderation in gross and net NPAs for PSU banking sector. From the FY18 high of 15% gross NPAs, PSU banks in Q2FY23 reported 6.5% gross NPAs.  <\/p>\n\n\n\n

For the banking sector, assets are loans and advances lent to customers and deposits accumulated by banks are liabilities. As NPAs decline and bank\u2019s credit growth improves, net interest income (NII) and net interest margin (NIM) increases, augmenting profitability. All PSU banks reported decline in GNPA and Net NPA ratio in September 2022 quarter with Central Bank, Union Bank and Punjab & Sind Bank topping the table. Provision Coverage Ratio is also high for PSU banks. PCR is the ratio of provisions to gross NPAs of a bank indicating funds available to cover up future losses.<\/p>\n\n\n\n

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.With strong asset quality, all profitability parameters NII (interest earned less interest expended), NIMs (NII\/average assets) and net profit were robust for PSU banks. NIMs have improved gradually for the PSU banking sector over the past two years, moving past 3% and catching up with private peers’ 4% benchmark.<\/p>\n\n\n\n

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In terms of net profit, PSU banks are ahead of their private peers. SBI\u2019s net profit came in at Rs 13,265 crore, highest net profit in banking sector dethroning HDFC bank after seven years. While SBI\u2019s net profit grew 74% YoY, Bank of Baroda, Canara Bank and Union reported 59%, 89% and 103% YoY growth respectively in Q2FY23.<\/p>\n\n\n\n

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In addition to lower NPAs and stable asset quality, rising interest rates have also aided PSU banks and banking sector\u2019s profitability. But will this strong performance continue?<\/p>\n\n\n\n

PSU banks\u2019 decade high credit growth in Q2FY23 <\/strong><\/p>\n\n\n\n

RBI increased repo rate again by 35 bps recently, fifth consecutive rise aggregating to 190 bps jump in repo rate, now at 6.25%. Repo rate is the rate at which banks borrow from RBI. As the cost of borrowings increase for the banking sector, banks increase interest rates on loans and advances leading to higher NII and margins. Credit growth for the banking sector as a whole is on high, around 17-18% currently. Pent up demand in retail loans, rising working capital loans and capital expenditure by the corporate sector are driving the Indian banking sector loan book. PSU banks loan growth running in single digits, a year ago is now catching up with private peers reporting double digit YoY growth in Q2FY23.<\/p>\n\n\n\n

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Retail segment and not the corporate segment now constitutes the largest pie of the PSU loan book. Private sector banks no longer have the technological edge as PSU banks have too caught up on the digital front providing retail loans in a matter of minutes. Retail loans comprise auto, personal, gold, and home loans. Within the retail segment, PSU banks are focussing on housing loans (secured loans) with higher recovery rate compared to personal loans and microfinance sector aggressively pursued by their private peers. Most of the PSU bank\u2019s housing loans as a percentage of total loan mix is in double digits<\/p>\n\n\n\n

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While the corporate segment still forms 30-40% of its total book, stringent underwriting standards, robust due diligence and loan approval policies are being followed. As inflation bites into consumer demand, retail loan growth slows down, tightening of liquidity by RBI is going to be a challenge for PSU banks. With their high low cost funds through CASA deposits, they might be tempted to lend to low graded investment projects.  But with high government surveillance on the banking sector and RBI\u2019s stringent supervision, the bad loan cycle of FY12-17 is difficult to recur. PSU banks are expected to move from strength to strength, riding the upcoming economic cycle of strong private capex and government\u2019s continued focus on infrastructure.<\/p>\n\n\n\n

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Nifty PSU bank index rose 3.6% over the past one month beating Nifty 50 down 3.5%. Nifty PSU bank index is the only sectoral index in the positive zone over the past 30 day period. All other indices, from pharma, realty, healthcare, to FMCG, metals and IT Nifty gave negative returns, ranging between 1-10% over […]<\/p>\n","protected":false},"author":3,"featured_media":966,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_eb_attr":"","om_disable_all_campaigns":false,"_mi_skip_tracking":false},"categories":[5],"tags":[10,66],"yoast_head":"\nPSU Banks \u2013 The long lost jewels are back\ufffc - Indiastockguru<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/indiastockguru.com\/index.php\/2023\/01\/01\/psu-banks-the-long-lost-jewels-are-back\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"PSU Banks \u2013 The long lost jewels are back\ufffc - Indiastockguru\" \/>\n<meta property=\"og:description\" content=\"Nifty PSU bank index rose 3.6% over the past one month beating Nifty 50 down 3.5%. 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